La fidelidad en la traducción

Key advantages/disadvantages

ADvANTAGES

— Provides versatility in adapting business form to the desired goals of the entrepreneur

— May provide tax advantages to the entities and investors

DISADvANTAGES

— May be difficult and costly to establish and maintain

— Organizational structure may be complex

— Requires higher level of emphasis on documentation and structuring of transactions to avoid negative tax

consequences from private inurement and unrelated business income

Case studies

DIGITAL DIvIDE DATA

Digital Divide Data, or DDD, is a federally tax exempt non-profit

corporation formed under the laws of California. Its mission is to create better futures for disadvantaged youth in developing countries through employment in a financially sustainable business. Founded in 2001, DDD identifies and recruits bright, motivated youth who would not otherwise have access to good jobs or higher education. It then trains and employs them at a fair wage, while offering them scholarships to attend university. The employment is in a social business that delivers high-quality, cost-effective, enterprise digital solutions to clients, while creating opportunity for some of most disadvantaged people on the planet. In 2010, DDD formed its wholly-owned subsidiary Digital Divide Data Ventures LLC, or DDD Ventures, a for-profit Delaware limited liability company, for purposes of operating for-profit businesses which are consistent with its exempt purpose as a charitable organization.

Such operations are intended to facilitate the creation of sustainable

jobs and educational opportunities for individuals throughout the world. DDD Ventures owns for-profit enterprises located in Kenya, Laos and Cambodia. For more information, please visit http://www.

digitaldividedata.org.

PACIFIC COMMUNITY vENTURES, INC.

Pacific Community Ventures, Inc. is a California non-profit and Section 501(c)(3) tax exempt charitable organization. Its purpose is to create jobs and economic opportunity in low-income communities through the direct support of small businesses as well as by advocating for systemic change to increase investment in these communities. In support of this purpose, Pacific Community Ventures, Inc. provides business advising services and debt capital to small and high growth businesses that create jobs and opportunities in lower income communities, offers impact evaluation services to investment and philanthropic institutions and undertakes policy research in the areas of impact investing and small business needs to drive capital and resources to underserved communities. Pacific Community Ventures, Inc. also manages for-profit investment funds that invest in California businesses that bring significant economic gains to low-to-moderate income employees through its wholly-owned subsidiary, Pacific

Community Management, Inc., a for-profit Delaware corporation, and its affiliate, Pacific Community Ventures, LLC, a for-profit Delaware limited liability company (see the case study in Section 2.4 above). For more information, please visit http://www.pacificcommunityventures.org.

RSF SOCIAL FINANCE

Rudolf Steiner Foundation, Inc. (dba as RSF Social Finance), a New York non-profit corporation, is a financial services organization

dedicated to transforming the way the world works with money. In partnership with a community of investors and donors, RSF Social Finance and its affiliates (RSF) provide capital to non-profit and for-profit social enterprises addressing key issues in the areas of food & agriculture, education & the arts, and ecological stewardship.

Since 1984, RSF has made over $275 million in loans and over $100

million in grants to non-profit and for-profit social enterprises. RSF offers investing, lending, and giving services that generate positive social and environmental impact while fostering community and collaboration among participants. RSF provides such services directly and through its for-profit and non-profit affiliates including RSF Capital Management, Inc., a for-profit Delaware corporation and certified B Corporation, which provides senior working capital and subordinated term debt to businesses meeting a rigorous social enterprise profile, and RSF Social Investment Fund, Inc., a non-profit California public benefit corporation, which provides loans to non-profit organizations and makes investments related to RSF’s mission. For more information, please visit http://rsfsocialfinance.org/.

KEPLERS 2020, FPC

Kepler’s 2020, FPC, or Kepler’s, is a community-supported bookstore organized as a California flexible purpose corporation. Kepler’s was formed in 2012 and evolved from the former Kepler Corporation, which previously operated a book store in the San Francisco bay area since the 1950s.

Kepler’s mission is to serve as an accessible intellectual and cultural hub for public education, community dialog, and browsing and discovery of new ideas and books in order to open minds, deepen literacy, and promote critical thinking. Kepler’s also strives to promote positive short-term and long-term effects of, and minimize adverse short-term and long-term effects of, such activities on Kepler’s employees, authors, speakers, publishers, suppliers, customers, creditors, partners, the community and society. To pursue its mission, Kepler’s partners with Peninsula Arts

& Lectures, a California nonprofit public benefit corporation. Peninsula Arts & Lectures offers arts and lectures events, panel discussions, on-stage interviews and educational workshops covering the arts, culture, technology and current affairs to foster intellectual discourse and civic engagement. Although separate legal entities, Kepler’s and Peninsula Arts & Lectures collaborate closely by sharing certain resources pursuant to a resource sharing agreement with the goal of bringing people

together around ideas and books to foster intellectual discourse and civic engagement in the community. The two organizations share core values of community engagement, stewardship, and sustainability. For more information, please visit http://www.keplers2020.com/.

(a) Overview

Historically, social enterprises in the US choosing to organize as a corporation have had to choose between operating as for-profit business and establishing a non-profit corporation. Non-profit corporations may then apply for federal tax-exempt status under Section 501(c) of the Internal Revenue Code. Corporations that operate as for-profit businesses generally focus on maximizing shareholder value, while federal tax-exempt non-profit corporations must pursue an exempt purpose in order to receive substantial tax benefits, and could lose their tax-exempt status if they engage in activities that are not sufficiently connected to their exempt purposes.

While several types of exempt organizations may be involved in hybrid structures, most social enterprise hybrids involve charitable organizations, which are exempt under section 501(c)(3) of the Internal Revenue Code,¹⁰⁰ or public welfare organizations, which are exempt under section 501(c)(4) of the Internal Revenue Code. Both types of exempt organizations must be organized and operated exclusively for exempt purposes set forth in Section 501(c)(3) or Section 501(c)(4), and none of the earnings may inure to any private shareholder or individual. A charitable organization may not attempt to influence legislation as a substantial part of its activities and may not participate in any campaign activity for or against political candidates; public welfare organizations may engage in lobbying and limited political activity. Charitable organizations are eligible to receive tax-deductible contributions in accordance with the Internal Revenue Code, but public welfare organizations are not.

Over the past two decades, social enterprises have begun adopting more complex entity structures combining both for-profit and non-profit tax exempt entities in order to accomplish their goals. For example, a public charity may form a for-profit subsidiary or take an ownership interest in a for-profit entity consistent with its charitable purpose. Or a for-profit corporation could form a private foundation as an affiliated corporate foundation. Below are descriptions of two possible hybrid structures.

Entities considering forming such structures should be certain to consult with legal, accounting and tax advisors as there are a number of issues to consider including control and board composition, avoiding private benefit (particularly

100 Charitable organizations include both private foundations and public charities in hybrid structures due to strict IRS rules.

for insiders) and conflicts of interest, unrelated business income tax issues, and issues relating to respecting corporate separation.

Forming a non-profit corporation and obtaining federal tax-exempt status is a complex process. Organizations may also qualify for tax-exempt status through sections of the Internal Revenue Code other than Section 501(c)(3). For more information on these topics, please see the Charitable Organization Guide.

(b) Charitable organization as parent and for-profit entity as subsidiary Social enterprises may choose to form as a charitable organization and create a for-profit subsidiary in order to create more flexibility. For example, a charitable organization may find that it would like to explore a variety of financing alternatives for certain activities it would like to engage in or may want to provide equity compensation to attract employees. However, the charitable organization may not be permitted to pursue those financing activities and maintain its tax-exempt status.

The charitable organization could establish a subsidiary corporation in order to finance further growth in those areas. Depending on the nature of the subsidiary’s activity, an LLC might also be used. The charitable organization would own shares of stock or hold membership interests in the subsidiary, which could also raise funds from other investors. The charitable organization would retain sufficient ownership in the for-profit entity to control the activities of the new entity.

Please see the Charitable Organization Guide for information regarding the formation of non-profit corporations and qualifying as a tax-exempt organization. Any subsidiary of charitable organization would be formed as described elsewhere in this Guide.

(c) Non-profit foundation of for-profit entity

Another option available to social enterprises is to form a for-profit entity (as described elsewhere in this Guide) and establish a non-profit private foundation to pursue a charitable purpose. These are commonly referred to as corporate foundations, although they can be created by any type of for-profit entity. A private foundation is a charitable organization with federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. A private foundation may receive tax deductible donations, but unlike a public charity, it is not required to have a diversified donor base;

typically it is funded primarily by the related for-profit entity, its owners, and its employees. Unlike a public charity, a private foundation may be controlled by the sponsoring for-profit entity, although it is subject to restrictive rules, particularly with respect to transactions with the

affiliated profit business. This structure frequently is used to provide a for-profit company with an avenue for pursuing charitable purposes.

Please see the Charitable Organization Guide for information regarding the formation of non-profit corporations and qualifying as a tax-exempt organization.

4 CERTIFICATIONS, RATINGS

AND REPORTING SYSTEMS